2012 social-security-seminar-may-22-2012

Social Security Seminar

Walter H. Deyhle, CPA, CFP
Partner & Director, Tax Department
May 22, 2012


Social Security Questions
Social Security Questions

• How much will I get?
?
?
• When can I get it?
• Are there strategies I can use to
? ?

?
maximize my benefits?
?

?
2


Qualifying for Retirement Benefits

• 40 quarters
• In 2012, you are awarded one
quarter for every $1,130 in
t f $1 130 i
earnings.

3


Qualifying for Retirement Benefits (cont.)

• Average Indexed Monthly Earning (AIME)
• Based on highest 35 years indexed Social
Security (SS) income

4


Qualifying for Retirement Benefits (cont.)
Q lif i f i fi

• Primary Insurance Amount (PIA) Example: $5,000 AIME
• (90% of the first $761 of AIME) + $ 761 X .9 = $685
(32% of the next $3,825 of AIME) $3,825 X .32 = $ 1,224
+ (15% of additional AIME) $411 X .15 = $ 62

• B d i t $761 d $4 586
Bend points ‐ $761 and $4,586 $ 1,971
$ 1 971

5


Three Steps to Receiving Your Maximum Benefits
h f

1. Get 40 quarters.
1 G t 40 t
2. Replace low years with
higher years.
higher years
3. Review SS benefit
statement annually.
statement annually

6


When Can I Claim Retirement Benefits?
Year of Full Per Month Reduction If Age 62 Per Month Age 70
Birth Retirement Benefits Begin Prior to Benefits Delay Benefits
Age (FRA)
Age (FRA) Full Retirement Age
Full Retirement Age as a % of
as a % of Retirement
Retirement as % of
as % of
PIA Credits PIA
1943 ‐ 1954 66 5/9% for 36 mos. + 5/12%/mo. 75% 2/3% 132%
1955 66 and 2 mos
and 2 mos 5/9% for 36 mos. + 5/12%/mo.
5/9% for 36 mos + 5/12%/mo 74 1/6%
74 1/6% 2/3% 130 2/3%
130 2/3%
1956 66 and 4 mos 5/9% for 36 mos. + 5/12%/mo. 73 1/3% 2/3% 129 1/3%
1957 66 and 6 mos 5/9% for 36 mos. + 5/12%/mo. 72 1/2% 2/3% 128%
1958 66 and 8 mos 5/9% for 36 mos. + 5/12%/mo. 71 2/3% 2/3% 126 2/3%
1959 66 and 10 mos 5/9% for 36 mos. + 5/12%/mo. 70 5/6% 2/3% 125 1/3%
1960 ‐ on 67 5/9% for 36 mos. + 5/12%/mo. 70% 2/3% 124%

7


Monthly Benefit Amounts Differ Based on the Age You
Decide to Start Receiving Benefits
(This example assumes a benefit of $1,000 at full retirement age of 66)

$1,400 $1,320
$1 320
$1,160 $1,240
$1,200 $1,080
$1,000 $933 $1,000
$866
$800
$800 $750 $800 Monthly
$600 Benefit
$400 Amount
$200
$200
$0
62 63 64 65 66 67 68 69 70
Age You Choose to Start Receiving Benefits
Age You Choose to Start Receiving Benefits

8


Cumulative Lifetime Benefits through Ages 70 to 100 if Social Security
Benefits Begin at Age 62 through 70
B fit B i t A 62 th h 70
Ages 70 75 80 85 90 95 100
62 $
$144,000
, $
$234,000
, $
$324,000
, $
$414,000
, $
$504,000
, $
$594,000
, $
$684,000
,
63 $134,400 $230,400 $326,400 $422,400 $518,400 $614,400 $710,400
64 $124,800 $228,801 $332,801 $436,802 $540,802 $644,802 $748,803
65 $112,000
$112 000 $223,999
$223 999 $335,999
$335 999 $447,998
$447 998 $559,998
$559 998 $671,998
$671 998 $783,997
$783 997
66 $96,000 $216,000 $336,000 $456,000 $576,000 $696,000 $816,000
67 $77,760 $207,360 $336,960 $466,560 $596,160 $725,760 $855,360
68 $55,680 $194,880 $334,080 $473,280 $612,480 $751,680 $890,880
69 $29,760 $178,560 $327,360 $476,160 $624,960 $773,760 $922,560
70 0 $158,400
$158 400 $316,800
$316 800 $475,200
$475 200 $633,600
$633 600 $792,000
$792 000 $950,400
$950 400

9


The Payoff from Different Retirement Dates
The Payoff from Different Retirement Dates
1. Determine your full retirement age.
1 Determine your full retirement age
2. Determine your full retirement benefit at that
retirement age by going to www.ssa.gov/estimator.
• For example, say your full retirement benefit at 66 is
For example say your full retirement benefit at 66 is
$1,500 per month.
3. Determine your benefit at 62 by going to
www.ssa.gov/estimator.
• In this example, if you claim benefits at 62, your
monthly payment is $1,125.

10


The Payoff from Different Retirement Dates (cont.)
The Payoff from Different Retirement Dates (cont )

4. Figure out how much you would take home in the 48
g y
months between age 62 and your full retirement age (66)
if you started collecting at 62.
• I thi
In this example, you’re taking home $1,125 per month
l ’ t ki h $1 125 th
and you’re doing that for 48 months so $1,125 x 48 =
$54,000.

11


The Payoff from Different Retirement Dates (cont.)
The Payoff from Different Retirement Dates (cont )
5. Now figure out how many months you would have to
survive beyond age 66 in order to break even.
survive beyond age 66 in order to break even
• In this example, the difference in monthly payment taken at
age 62 ($1,125 per month) and 66 ($1,500 per month) is
$375.
$375
• Divide the amount from Step 4 ($54,000 in this example) by
the difference in monthly payments ($375 in this example)
and you get the number of months you’d have to survive
beyond age 66 in order to break even (in this case, 144
months or 12 years).
• In this example if you live past age 78 you come out ahead
by starting your benefits at the full retirement age of 66.
by starting your benefits at the full retirement age of 66

12


Strategy for a Single Person
Strategy for a Single Person
Born between 1943 and 1954, here are some general
guidelines:
• If you’re comparing retirement at 62 with full
retirement at 66, your break even age is typically
retirement at 66, your break‐even age is typically
around 77 or 78.
• If you die earlier, you could end up with more money
by claiming early retirement benefits.
by claiming early retirement benefits
• If you live longer, you could be better off taking your
benefits at 66.

13


Strategy for a Single Person t
Strategy for a Single Person ((cont.))
• If you’re comparing full retirement at 66 with
delayed retirement at 70, your break‐even age is
d l d b k
typically around 82.
• If you die before 82 or so, you could end up with
more money by beginning benefits at 66.
• If you live past 82, you could be better off delaying
your retirement benefits until you turn 70.

These numbers are only estimates and do not include cost‐of‐living
g
hikes, which could make the break‐even age come earlier.

14


Strategy Lessons
S
1. If a single person lives to age 80, there is no
1 If i l li t 80 th i
difference in taking benefits between 62
and 70.
and 70
2. Life expectancy < 75, take at 62
3. Life expectancy > 83, take at 70
3 Life expectancy > 83 take at 70
4. Longevity risk

15



• Possible reductions to benefits
1. Windfall Elimination provision
2. Working while receiving benefits

16


Earnings Test – Annual Earnings Limit
i l i i i
• If you get benefits but also earn money and you are
If you get benefits but also earn money and you are
collecting SS but haven’t reached full retirement age,
the SSA will reduce your benefit by $1 for every $2 you
earn in excess of $14,640 (2012).
i f $14 640 (2012)
• In the year in which you reach full retirement age, the
SSA will reduce your benefit by $1 for every $3 you
SSA will reduce your benefit by $1 for every $3 you
earn in excess of $38,880 (2012).
• Typically goes up every year

17


Spousal Benefits and Survivor Benefits
Spousal Benefits and Survivor Benefits

• Spousal benefits are benefits one spouse
S lb fit b fit
receives based on the other spouse’s
earnings record when he/she is alive.
earnings record when he/she is alive
• Survivor's benefits are benefits one spouse
receives based on the other spouse s
receives based on the other spouse’s
earnings record after the spouse has died.

18


Dual Entitlement

• A spouse is entitled to the larger of benefits
based on their own earning record or, if
eligible, spousal benefits, which is up to
li ibl lb fi hi h i
50% of the other spouse’s PIA.

19


Spousal Benefit Rules
S l fi l
• In order for a spouse to receive spousal
I d f t i l
benefits, the other spouse must have “filed
for benefits based on his/her earnings
for benefits based on his/her earnings
record.”

20


Spousal Benefit Rules t
Spousal Benefit Rules ((cont.))
• If a spouse applies for benefits before attaining Full
Retirement Age (FRA) and he/she is eligible for
Retirement Age (FRA) and he/she is eligible for
spousal benefits, then he/she is deemed to be
applying for both his/her own benefits and spousal
benefits.
• This spouse will receive the larger of the two –
his/her own benefits or spousal benefits (if eligible) –
but not both.
• Thus before attaining FRA a spouse cannot apply for
spousal benefits only and later switch to his/her own
benefits or vice versa.

21


Spousal Benefit Rules t
Spousal Benefit Rules ((cont.))
• If a wife has attained FRA (and her husband
If a wife has attained FRA (and her husband
has filed), then she can make a restricted
application for spousal benefits only and
receive 50% of his PIA. Meanwhile, benefits
based on her record would continue to
accrue delayed retirement credits.
d l d ti t dit

22


Spousal Benefit Rules (cont.)
S l fi l
• Spousal benefits are reduced if the spouse
S lb fit d d if th
claiming them has not attained FRA.

23


Survivor Benefits
Survivor Benefits
• The FRA for survivor s benefits can be
The FRA for survivor’s benefits can be
different from the FRA for benefits based on
her* earnings record or spousal benefits.

* Presenting as if the husband dies but rules are
g
parallel

24


Dual Entitlement
l il
• She is entitled to the larger benefits based on
Sh i titl d t th l b fit b d
her earning record or survivor’s benefits
based on his records.
based on his records

25


Survivor Benefit Rules
Survivor Benefit Rules

• She can receive full survivor's benefits when
Sh i f ll i ' b fit h
she attains FRA for widows or reduced
benefits as early as age 60.
benefits as early as age 60

26


Survivor Benefits Rules t
Survivor Benefits Rules ((cont.))
• If she begins after attaining her FRA for
If she begins after attaining her FRA for
widows then she is entitled to the larger of
1. 82% of his PIA or
2. Deceased spouse’s monthly benefit where the
latter would include any delayed retirement
credits.

27


Survivor Benefits Rules t
Survivor Benefits Rules ((cont.))
• If she begins her survivor s benefits before
If she begins her survivor’s benefits before
attaining her FRA, her survivor’s benefits will
be reduced.
• If she begins benefits at 60, she will receive
71.5% of his full benefits.
• If she begins benefits at FRA for widows, she
will receive 100% of his full benefits.

28


Rules for Divorced Spouses
Rules for Divorced Spouses
• Marriage must have lasted 10 years.
Marriage must have lasted 10 years.
• You are currently unmarried.
• You are 62 or older.
You are 62 or older
• Your ex is entitled to benefits.
• If you want to receive survivor benefits, you
If you want to receive survivor benefits you
must wait until age 60 to remarry.

29


Couple Strategies
Couple Strategies

Name Age PIA FRAs Life
Expectancy
Mike 62 $2,000 66 80
Frances 58 $1,600 66 95

Let’s assume the first month
that benefits would be paid is
that benefits would be paid is
January so there are 12 monthly
payments in the first year.

30


Frances/ Year Strategy 1 Strategy 2 Difference
Mike’s Ages ( S2 ‐ S1)
58/62 1 $1,500 ‐ $1,500
59/63 2 $1,500 ‐ $1,500
60/64 3 $1,500 ‐ $1,500
61/65 4 $1,500 ‐ $1,500
62/66 5 $1,200 + $1,500
$1 200 + $1 500 $1,200 + $800
$1 200 + $800 ‐ $700
63/67 6 $1,200 + $1,500 $1,200 + $800 ‐ $700
64/68 7 $1,200 + $1,500 $1,200 + $800 ‐ $700
65/69 8 $1,200 + $1,500
$ $ $1,200 + $800
$ $ ‐$
$700
66/70 9 $1,200 + $1,500 $1,200 + $2640 $1,140
67/71 10 $1,200 + $1,500 $1,200 + $2640 $1,140

31


Frances/ Year Strategy 1 Strategy 2 Difference
Mike’s Ages
… … …. … …
75/79 18 $1,200 + $1,500 $1,200 + $2,640 $1,140
76/ 19 $1,650 $2,640 $990
77/ 20 $1,650 $2,640 $990
78/ 21 $1,650
$1 650 $2,640
$2 640 $990
… … …. … …
94/ 37 $1,650 $2,640 $990

Cum Lifetime Benefits Strategy 1 Strategy 2 Difference

$901,800 $1,158,720 $257,040

32


Lesson Learned from Mike and Frances
• The relevant life expectancy for the decision of
when the spouse with the HIGHER PIA should
begin benefits based on his earnings is the
lifetime of the second spouse to die.
lifetime of the second spouse to die
• While the relevant life expectancy for the
p
decision as to when the spouse with the
LOWER PIA should begin benefits based on her
record is the lifetime of the first spouse to die.

33


• If at least one spouse lives well beyond the age
If at least one spouse lives well beyond the age
that the higher earner turns 80, the couple’s
cumulative lifetime benefits will usually be
y
highest if he delays benefits based on his
record until age 70.

34


Claim Now and More Later

• Lower‐earning spouse claims benefits as soon
as possible. Higher‐earning spouse claims a
spousal benefit when they reach FRA and
switch to benefits based on earnings record at
age 70.
age 70
• Both must have their own earned records.

35


Claim and Suspend

• Higher‐earning spouse claims and suspends
when reaching full retirement age.
• Lower‐earning spouse claims spousal benefit.
• It works best with one breadwinner families
where the breadwinner is 3‐5 years older.

36


Survivor Strategies
Survivor Strategies

• P i b kb
Paying back benefits
fit

37


Taxation of Social Security Benefits

Single MAGI Married MAGI

No tax
No tax <$25K
$25K <$32K
$32K

Tax on 50% of benefits $25K‐$34K $32K‐$44K

Tax on 85% of benefits >$34K >$44K

38


Next Steps

• Visit SS website.
• www.ssa.gov
• Recover your benefit statement.
• Take appropriate actions based on statement.
• As you approach age 62 formulate benefit
strategy.

39


Social Security Administration (SSA)
S i lS it Ad i i t ti (SSA)
• Runs the basic Social Security
y
protection for retirement,
survivors and disability
• Runs SSI for the poor
R SSI f th
• Handles application for Medicare
and deduction in benefits that
and deduction in benefits that
pay Medicare premiums (doesn’t
run the actual program)

40


Applying for Social Security Benefits
l i f S i lS i fi
• Time your application for benefits.
y pp
• Three months prior to you wanting to receive them
• Know where to go.
• In person, by phone, online
• Find out what’s required to apply.
Fi d t h t’ i dt l
• Originals or official copies (no notarized photocopies)
• Recent earning, marital history, military background, if you qualify for
federal pension and possible eligibility of any family members for SS
benefits (based on your own work record)
b f (b d k d)
• Social Security number, birth certificate, Form W‐2 earnings statement,
military discharge papers, proof of U.S. citizenship
• Discover how and when your payment will arrive.

41


Navigating the System
i i h S
• Keep good records of correspondence
Keep good records of correspondence.
• Have someone by your side.
• Keep SSA in the loop
Keep SSA in the loop.
• Death, divorce, birth/adoption, name change, earning
more money, non‐SS payments for disabilities (worker’s
compensation), citizenship status changes, criminal
conviction, Railroad Retirement benefits, work outside
the US and younger than full retirement age
the US and younger than full retirement age

42


Medicare
di
• Automatically enrolled in Medicare when you turn 65 if you have
y y y
been collecting SS
• If not, apply for Medicare (3‐4 months prior)
• Eligible at any age after 24 months of approved Social Security
Disability Insurance or certain diseases (ALS, end‐stage renal
Di bili I i di (ALS d l
[kidney] disease)
• If not, apply for Medicare (3‐4 months prior)
• Made up of four parts
Made up of four parts
• A and B make up the “traditional” or “original” Medicare program
• Each has its own fee structure

43


Medicare (cont.)
di
A. Hospital insurance
A Hospital insurance
• Some expenses – may cover temporary rehabilitation
or skilled care
–B i h i l
Basic hospital services, including semi‐private room,
i i l di i i
regular nursing care, hospital meals and other hospital
services (medications, lab tests, medical supplies, etc.)
• Face a deductible ($1 156) for each “benefit period”
Face a deductible ($1,156) for each benefit period
– Begins on the day you’re admitted to the hospital and ends
when you’ve been out of the hospital for 60 days in a row

44


Medicare (cont.)
di
B. Medical insurance
• Covers 80% of the cost of most services
• Doctor visits, outpatient care, certain tests conducted
outside hospitals and some done inside the hospital such as
surgery
• Monthly premium (higher‐income seniors charged
more)
• Set at $99.90 in 2012 and annual deductible ($140 in 2012)
Set at $99 90 in 2012 and annual deductible ($140 in 2012)
• Typically pay 20% of the cost of approved services
• Annual wellness visits, preventive screenings, oxygen
equipment, outpatient mental‐health services, etc.

45


Medicare (cont.)
di
C. Medicare Advantage
Medicare Advantage
• Run by private insurance companies and you must
accept their rules
• Must offer all the benefits of traditional Medicare (A and B)
Must offer all the benefits of traditional Medicare (A and B)
but may charge lower copays and offer some additional
services (hearing, vision, dental)
• Must pay Part B in addition to what Medicare Advantage
p y g
plan charges you
• Company has the right to drop out of plan or change cost and
coverage every calendar year

46


Medicare (cont.)
di
D. Prescription‐drug coverage
p g g
• Handled by private plans that have been approved by Medicare
and varies widely
• Must offer all the benefits of traditional Medicare (A and B) but may
charge lower copays and offer some additional services (hearing, vision,
dental)
• Premiums range from $35 to $50 per month and deductible of
up to $320 in 2012 (some have none)
• Deductable ‐ $320
• Coverage ‐ Up to $2,930
• Doughnut hole ‐ 50% discount on brand name and 14% discount on
generics until $4,700
• Catastrophic protection – pays 5% until end of the year

47


Medicare (cont.)
di
• What parts to enroll in:
What parts to enroll in:
• Everyone should sign up for Part A even if you have
other coverage.
• Sign up for Part B if you have no health insurance
and if it makes sense.
• Keep track of enrollment periods.
K k f ll i d
• Avoid late fees.

48


The Windfall Elimination Provision:
Th Wi df ll Eli i ti P i i
If You Qualify for a Pension as well as Social Security

• For an employee who earned a pension from an
employer that wasn’t part of the Social Security
system
• SSA will use a different formula to compute your
benefit and your benefit will be reduced.
benefit and your benefit will be reduced
• Complex and various exceptions

49


The Windfall Elimination Provision (cont.)
• May apply if you turn 62 or became disabled after
1985 and you first qualified for a pension based on
work in which you did not pay SS taxes after 1985
work in which you did not pay SS taxes after 1985
• Does not apply to federal workers hired after
December 31, 1983
• Capped at 50 percent of your uncovered pension

50


The Government Pension Offset Provision
• Your social security may be reduced (significantly).
• Two‐thirds of the amount of your government pension
• Example: You have a government pension of $900 per
Example: You have a government pension of $900 per
month and you’re eligible for a Social Security widow’s
benefit of $1,200 per month. SS may reduce your
widow’s benefit to $600.

51


The Government Pension Offset Provision (cont.)
Th G t P i Off t P i i
Several factors can preserve your full Social Security
Several factors can preserve your full Social Security
benefit such as the following:
• Your government pension is not based on earnings.
• Your government pension is based on a job in which
you paid Social Security taxes and you filed for Social
Security benefits before April 1, 2004 or you paid SS
Security benefits before April 1 2004 or you paid SS
taxes on your earnings during the last five years of
government work.

52


The Government Pension Offset Provision (cont.)
Th G t P i Off t P i i
• You’re a federal employee who switched from civil
service retirement to the Federal Employees
Retirement System (FERS) after December 31, 1987
and you filed for Social Security spousal or
and you filed for Social Security spousal or
widow/widower benefits before April 2004; your job
ended before July 1, 2004, or you paid Social Security
taxes on five years of earnings from the government
ta es on fi e ears of earnings from the go ernment
between January 1988 and when you became entitled
to benefits.

53

4550 Montgomery Avenue, Suite 650N • Bethesda, MD 20814

Connect with Us
Connect with Us
Walter H. Deyhle, CPA, CFP
Email: wdeyhle@grfcpa.com
Telephone: (301) 951
Telephone: (301) 951 – 9090
Website: www.grfcpa.com

2012 social-security-seminar-may-22-2012

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